The paper "Different Stages of an audit, Corporate Governance" is a perfect example of a finance and accounting assignment. An audit involves three stages: the risk assessment stage, the risk response stage, and the last stage of concluding and making a report about the audit. The risk assessment stage involves getting an understanding of the client, identification of risk factors and coming up with an audit strategy, and assessing the risk as well as materiality. The risk response stage involves carrying out tests of control and performing comprehensive substantive testing of accounts and transactions, with attention paid to where the material misstatement risk is highest.
The reporting stage involves appraisal of the comprehensive testing results, taking into consideration the auditor’ s understanding of the client coming up with a judgement regarding the fairness and truth of the financial report of the client. The auditor then prepares an audit report that reflects his or her opinion on the basis of the findings. Explain the process used in gaining an understanding of the client? Auditors gain an understanding of their client as part of the risk assessment process.
The process of understanding the client involves considering issues at the organisation level, the industry level, and the wider economic level. At the organisation level, an auditor identifies the client’ s key suppliers, customers and other stakeholders such as employees, banks, and shareholders. This involves looking at the nature of the client’ s operations, such as the provision of warranties to customers and the client’ s level of innovation to make use of new technologies. At the industry level, auditors examine the client’ s position vis-à -vis other players in the industry.
At the economic level, auditors assess how well-positioned the client is to deal with the current business environment, which includes issues such as changing government policies as well as economic conditions. Define fraud risk? Fraud is the deliberate action of obtaining an undeserved or illegal advantage by way of deception. Therefore, fraud risk is the possibility that a person or a group of people will be engaged in actions of obtaining an undeserved or unlawful advantage through deception. There are two types of fraud, namely misappropriation of assets fraud and financial reporting fraud. Explain the going concern assumption? The going concern assumption is a presumption that is made on the basis that a firm will remain operational for the foreseeable future.
Under the going concern assumption, the valuation of assets is done based on the assumption that the assets will continue to be used in the operations of the business. As well, liabilities are documented and categorised as current and long-term based on the belief that clients will pay their debts when becoming due in the coming years. Describe corporate governance? Corporate governance can be defined as the system of controlling and overseeing the conduct of companies and of ensuring that there is a balance in the interests of all internal stakeholders and external stakeholders such as customers, local communities and the government.
The aim of corporate governance is to make sure that companies exercise responsible behaviour, and by doing so, ensure that there is long-term and sustainable growth for firms. In other words, corporate governance is the system by which corporations are controlled and monitored to ensure that the corporations attain sustainable long-term growth and to strike a balance between the interests of the companies’ shareholders, management and stakeholders.